shifting income to captial gain

[Pickle2]

Just a thought.

This new 18% flat rate will encourage people to shift cashflow defined as "income" into cashflow defined as "capital gain" as the tax rates are now wildy different , 40% compared to 18%. Apparently this soft of accounting "magic" was all the rage before the two tax rates were previously aligned at 40%.

Rather than issue dividends above the 40% income tax threshold, could my company now choose to regularly buy back some of its shares, thus shifting that >40% bracket dividend income (taxed at an extra 25% post CT) into the
18% post CT Capital gains bracket?

Either way, im sure the accountants will make a few quid from the rule changes!

[dude69]

Just a thought.

This new 18% flat rate will encourage people to shift cashflow defined as "income" into cashflow defined as "capital gain" as the tax rates are now wildy different , 40% compared to 18%. Apparently this soft of accounting "magic" was all the rage before the two tax rates were previously aligned at 40%.

Rather than issue dividends above the 40% income tax threshold, could my company now choose to regularly buy back some of its shares, thus shifting that >40% bracket dividend income (taxed at an extra 25% post CT) into the
18% post CT Capital gains bracket?

Either way, im sure the accountants will make a few quid from the rule changes!

Remember though, it's not really 18%, it's 18% on top of CT.

So for £1 of pre-tax profit, you have 80p post tax profit.

If paid out as a dividend, you get 60p. If paid out as a capital gain, you get 65.6p. So it isn't as good as you imply because of income tax imputation on dividends, which you don't get with capital gains

Of course if you aren't using your £9,200/year, then that will considerably reduce marginal rates of taxation: £9,200/year would not attract any CGT at all.

[Pickle2]

So it isn't as good as you imply because of income tax imputation on dividends, which you don't get with capital gains

I'll have your 6p in the pound then if you dont want it.

[Iron Condor]

Remember though, it's not really 18%, it's 18% on top of CT.

So for £1 of pre-tax profit, you have 80p post tax profit.

If paid out as a dividend, you get 60p. If paid out as a capital gain, you get 65.6p. So it isn't as good as you imply because of income tax imputation on dividends, which you don't get with capital gains

Of course if you aren't using your £9,200/year, then that will considerably reduce marginal rates of taxation: £9,200/year would not attract any CGT at all.

I thought the high rate of divi tax was 22.5%, so it would 62.2 vs 65.6.

[dude69]

I thought the high rate of divi tax was 22.5%, so it would 62.2 vs 65.6.

My sums are correct, you get 60p in the pound of pre-tax profit

[ryebank]

But if the company buys back shares can't it set the cost of doing so against the profits of the company thus reducing the CT part - or is that not allowable

[minstrel]

I thought the high rate of divi tax was 22.5%, so it would 62.2 vs 65.6.

No - the higher rate divi tax is 32.5% but you get a 10% credit for dividends received.

So 80p received dividends is 88.89p including 10% tax credit. Take your 32.5% off 88.89p and you get 60p.

[Iron Condor]

No - the higher rate divi tax is 32.5% but you get a 10% credit for dividends received.

So 80p received dividends is 88.89p including 10% tax credit. Take your 32.5% off 88.89p and you get 60p.

Thanks, its obvious ive never paid myself higher rate divis and now i know its 25% i hope i never have too.

[Ruprect]

So pickle's idea is a good one non?

[Ruprect]

Also - this has got to be worth it on a yearly basis for the 9200 CT allowance at least hasn't it?